Skip to content

Tax Alert: Obama Announces Tentative Deal to Extend Bush Tax Cuts

by Phil Levin, Esq. on December 7th, 2010

Yesterday afternoon, President Obama announced a tentative deal with Republicans on extending the sweeping tax cuts signed into law by President George W. Bush nearly a decade ago.

The agreement includes a two year extension on the Bush income tax cuts, and would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples, with a tax rate of 35% that would apply to the taxable portion of estatesĀ  (from the Washington Post):

The deal extends all the tax cuts for two years, including those on upper-income Americans that Obama wanted to end. As a result, the debate over the tax cuts will have to be revisited again during the 2012 presidential campaign.

“There are things in here that I don’t like,” Obama said. But he said refusing to compromise would create a stalemate, which he called “a chilling prospect for the American people.”

“We have arrived at a framework of a bipartisan agreement,” Obama said. “For the next two years, every American family will keep their tax cuts.”

The outlines of the deal emerged from the White House and Republicans in Congress after Obama met with congressional Democrats late on the afternoon of December 6th. Democrats stressed that the deal isn’t final until they run it by their colleagues, probably on Tuesday.

Here are details of the emerging deal:

  • Extends unemployment insurance for 13 months. Two million workers in December, and 7 million over the next year, would have lost benefits otherwise.
  • Provides a one-year, 2 percentage point reduction in employees’ Social Security payroll taxes, lowering the rate from 6.2% to 4.2%, at a cost of $120 billion.
  • Keeps the Earned Income Tax Credit and American Opportunity Tax Credit increases from last year’s economic stimulus law, for another $40 billion in tax cuts for families and students.
  • Allows businesses to write off 100% of their capital purchases next year.
  • Sets the estate tax at 35% for two years, with a $5 million exemption on assets. [The top federal estate tax rate came down under Bush’s policy from 55% before 2001, to 45% in 2009 before expiring this year, and was scheduled to return to a top rate of 55% next year.]
  • Protects millions of taxpayers from seeing their taxes raised in 2010 and 2011 under the Alternative Minimum Tax.

Obama stressed that he didn’t like two elements of the deal — the temporary extension of tax cuts for upper-income Americans, which he said would have cost $700 billion if stretched for the entire next decade, and making the federal estate tax exemption more generous for the same time period.

In two years, he said, “It will become apparent that we can’t afford these tax cuts any longer.” The White House said it expects a vigorous debate about that during the 2012 presidential election.

Stay posted for updates on the future of the death tax in Estate Planning Matters. The only certainty right now is that there will be no permanent estate tax repeal.

Share or Bookmark This

From → Articles, In The News

No comments yet

Leave a Reply

Note: XHTML is allowed. Your email address will never be published.

Subscribe to this comment feed via RSS